Economy

The size of the initial budget for the year starting in April topped the previous high of ¥92.30 trillion for fiscal 2010. The bloated budget is at odds with Kan's earlier pledge to restore the country's tattered fiscal health, the worst among major developed economies. New government bond issuance will be cut to ¥44.298 trillion from the record ¥44.303 trillion marked the previous year. But the nation's overall bond issuance will hit a record-high ¥169.59 trillion on a rise in refinancing costs.

So what are the implications of the recent rise in commodity prices? It is, as I said, a sign that we’re living in a finite world, one in which resource constraints are becoming increasingly binding. This won’t bring an end to economic growth, let alone a descent into Mad Max-style collapse. It will require that we gradually change the way we live, adapting our economy and our lifestyles to the reality of more expensive resources.

Europe is off 1.25% this morning (8am) as the Shanghai fell 2% and the Hang Seng dropped 0.3% on news that China was raising rates 0.25% for the second time in 2 months - weeks ahead of what most considered a fairly aggressive tightening schedule. Chinese Premier Wen Jiabao voiced confidence Sunday that his government can contain rising prices. Speaking to listeners during a visit to state radio headquarters, Mr. Wen acknowledged that recent price increases have "made life more difficult" for middle and lower-income Chinese. But, pointing to measures the leadership has taken in recent months, he said: "As it looks now, we are completely able to control the overall level of prices." The remarks, in a session where Mr. Wen was asked repeatedly about prices, reflect the issue's political sensitivity for Beijing.

New York, which faces a $2.5 billion deficit in the $65 billion budget projected for next year, will be more affected by lost economic activity than clean-up costs, Mayor Michael Bloomberg said at a City Hall news conference. The New York Stock Exchange and the Nasdaq Stock Market kept normal hours today. The New York Mercantile Exchange delayed the opening of floor trading until 11 a.m. “They pay me good money to be here,” said Vinny Stavola, an Oppenheimer & Co. convertible trader, who trekked from Staten Island to get to work in midtown Manhattan by 6:30 a.m. “It doesn’t take a heroic effort to get to work, just a little dedication.”

Many would-be shoppers stayed tucked in at home during what is typically one of the biggest sales times of the year, while some retailers postponed opening or kept stores closed on Sunday and Monday. The immediate hit could be "brutal" for retailers, says Marshal Cohen, industry analyst at research firm NPD Group. This past shopping weekend was already cut in half with Christmas falling on a Saturday.

U.S. oil stockpiles probably decreased 3 million barrels from 340.7 million in the week ended Dec. 24, according to the median estimate of nine analysts surveyed by Bloomberg News. Supplies have fallen this month by 19 million barrels, or 5.3 percent, the most since December 2006. The Energy Department will release its Weekly Petroleum Status Report at 11 a.m. in Washington on Dec. 30, a day later than usual because of Christmas.

Regulators seem to agree that banks deemed too big to fail are dangerous. Large lenders enjoy implicit government support because of their importance, and as a result, they tend to have higher credit ratings and pay less for deposits and wholesale financing. That, in turn, encourages them to become even bigger and more interconnected. Broadly speaking, there are two ways to tackle the problem. One is to make big banks less likely to fail. The other is to reorganize them so that they can be allowed to fail without threatening the financial system. In 2011, regulators are likely to concentrate on the first option.

Article suggestions for the Daily Digest can be sent to [email protected]. All suggestions are filtered by the Daily Digest team and preference is given to those that are in alignment with the message of the Crash Course and the "3 Es."

"In 15 states, health-insurance premiums are the equivalent of at least 20 percent of median household income for people under 65, according to the report. The data comes from the government’s Medical Expenditure Panel Survey.

The proportion of U.S. gross domestic product devoted to health care doubled to 18 percent between 1980 and 2009, Schoen said. "

"Dec. 27 (Bloomberg) -- The Federal Reserve may expand its purchases of U.S. Treasuries, or quantitative easing, beyond its $600 billion target, said Vincent Reinhart, who was the Fed’s chief monetary-policy strategist from 2001 until September 2007.

“They do all of QE2 because they don’t want to be seen as succumbing to outside pressure,” Reinhart, now a scholar at the American Enterprise Institute in Washington, said in an interview on Bloomberg Television’s “Street Smart” with Carol Massar. “I think there is a chance there will be QE3 and it is going to be because the unemployment rate is above 9 percent,” he said, referring to a third round of purchases."

"HAMTRAMCK, Mich. — Leaders of this city met for more than seven hours on a Saturday not long ago, searching for something to cut from a budget that has already been cut, over and over.

This time they slashed money for boarding up abandoned houses — aside from circumstances like vagrants or obvious rats, said William J. Cooper, the city manager. They shrank money for trimming trees and cutting grass on hundreds of lots that have been left to the city. And Mr. Cooper is hoping that predictions of a ferocious snow season prove false; once state road money runs out, the city has set nothing aside to plow streets.

“We can make it until March 1 — maybe,” Mr. Cooper said of Hamtramck’s ability to pay its bills. Beyond that? The political leaders of this old working-class city almost surrounded by Detroit are pleading with the state to let them declare bankruptcy, a desperate move the state is not even willing to admit as an option under the current circumstances.

“The state is concerned that if they say yes to one, if that door is opened, they’ll have 30 more cities right behind us,” Mr. Cooper said, as flurries fell outside his City Hall window. "

"WASHINGTON - Richard Carlson turns 65 in January but already carries a symbol of that milestone - a Medicare card.

“It’s part of the ritual,” Carlson, a retired state insurance employee from Springfield, Ill., said about signing up for the government health care plan for seniors.

Carlson is among the 77 million baby boomers born between 1946 and 1964 who will become Medicare-eligible at the rate of one every eight seconds beginning in January. The implications of the population bulge are enormous - for government spending as well as for the care seniors will get.

Medicare is already sagging under the weight of cost increases above inflation that are driving it toward insolvency. The Centers for Medicare and Medicaid Services expects 2.8 million 65-year-olds will enter the system next year. Their average costs will exceed $7,700 per person.

Medicare spending is projected to increase 5.8 percent a year - hitting $929 billion by 2020. When the last of the boomers turn 65, the Medicare population will have nearly doubled from 47 million now to 80 million in 2030, according to projections in the 2010 Medicare Trustees Fund report."

"Through a combination of procrastination and bad timing, many baby boomers are facing a personal finance disaster just as they're hoping to retire.

Starting in January, more than 10,000 baby boomers a day will turn 65, a pattern that will continue for the next 19 years.

The boomers, who in their youth revolutionized everything from music to race relations, are set to redefine retirement. But a generation that made its mark in the tumultuous 1960s now faces a crisis as it hits its own mid-60s.

"The situation is extremely serious because baby boomers have not saved very effectively for retirement and are still retiring too early," says Olivia Mitchell, director of the Boettner Center for Pensions and Retirement Research at the University of Pennsylvania.

"Dec. 27 (Bloomberg) -- Copper futures rose to a record as inventories declined in China, the world’s largest user, bolstering speculation that demand will outpace supply.

Stockpiles monitored by the Shanghai Futures Exchange fell 5.8 percent last week, the biggest drop in almost three months. As of Sept. 30, global consumption exceeded output by 436,000 metric tons this year, the International Copper Study Group said last week. That compares with a deficit of 56,000 tons in the same period last year, the group said.

“Demand is pushing new highs while supply remains reasonably tight,” said Tim Parker, who manages $7.5 billion at T. Rowe Price Group Inc.’s New Era Fund in Baltimore. “There are only days of supply in inventories, and there’s so little new copper coming into the market.”"

"China cut its rare earths export quotas by 11 percent in the first round of permits for 2011, threatening to worsen a global shortage of the minerals needed for smartphones, hybrid cars and guided missiles.

The government allotted 14,446 metric tons of rare earth exports split among 31 companies, the Ministry of Commerce said in a statement. That compares with the first round this year of 16,304 tons and the second round of 7,976 tons, according to previous ministry statements. The government usually issues two rounds of export quotas every year.

China, which accounts for more than 90 percent of world supplies, slashed export quotas by 72 percent in the second half of this year, sparking a surge in prices. Japan, the biggest user, has sought alternate supplies with companies including Hitachi Metals Ltd. and Toyota Motor Corp. seeking cooperative ventures at home and abroad to secure the minerals. "

"Japanese Finance Minister Yoshihiko Noda renewed his warning to take “bold” action against the yen’s advance if needed, a sign of concern among policy makers about the currency’s climb slowing the recovery.

The yen’s recent appreciation has been “one-sided,” Noda told reporters in Tokyo today, adding that the government will take “bold action when moves are excessive.” Economy Minister Banri Kaieda said “abrupt yen moves must be avoided.” "

wow. that "Finite World" article sure seems to be right on in some ways. it seems to me that a somewhat gradual adjustment will be needed by people as resource prices rise as opposed to a giant societal collapse.

So what are the implications of the recent rise in commodity prices? It is, as I said, a sign that we’re living in a finite world, one in which resource constraints are becoming increasingly binding. This won’t bring an end to economic growth, let alone a descent into Mad Max-style collapse. It will require that we gradually change the way we live, adapting our economy and our lifestyles to the reality of more expensive resources.

Shops selling human excrement began operating in North Korea this year, as acute shortages of fertiliser in the sanctions-wracked country put a price on faeces, an analyst said.

Aid groups have said human waste has long been used on domestic crops in the impoverished communist state, but there is now a trade in the readily available commodity, a North Korea analyst told a seminar at a South Korean university.

"Each household used to use human excrement as fertiliser. But because it's hard to keep up with the amount, 'human manure' shops showed up at markets," Kim Young-Soo, a professor at Seoul's Sogang University, told the seminar.

The lack of fertiliser has become acute since South Korea stopped annual shipments of rice and fertiliser to North Korea in 2008, amid worsening relations.

Professor Kim also said other products making their way on to a limited must-have list for North Koreans this year included skinny jeans, after a ban on fashionable trousers was lifted.

North Korean women have previously been told to wear only skirts or traditional attire in public places, but the interdiction on trousers was lifted this year, Professor Kim said.

"Skinny jeans are now popular and are changing the fashion style of women in Pyongyang," he said, citing sources in the hermit state.

Other popular items include secretly imported South Korean products like instant noodles and adult movies, he said.

North Korea is a tightly controlled society with foreign-made films or dramas heavily censored or banned because of their decadent "imperialist" culture.

Defectors say South Korea's pop culture is nevertheless popular in the isolated country.

According to economist Nouriel Roubini, the housing market is in a double dip.

Photo: Oliver Quillia for CNBC

Nouriel Roubini

And negative Case-Shiller Home Price numbers out today only confirm that unpleasant truth.

"It's pretty clear the housing market has already double dipped," says Roubini. "And the rate of decline is stronger than in previous months," he said of the new housing data.

Aside from below trend economic growth, there are two factors specific to the housing market that are putting downward pressure on home prices.

The first factor is the expiration of federal home buyer tax credits for first time home buyers.

"If you look at the data, Case Shiller has been falling every month since the tax credit expired in May. Everyone who wanted to buy a home did so by April," Roubini said.

"That tax credit stole demand from the future and its expiration led to another 30% fall in home sales, pushing Case & Shiller lower for the last few months," Roubini wrote in a text message earlier this morning.

The second factor putting downward pressure on home prices is the ongoing chaos with mortgage documentation, and the consequent suspension by banks of mortgage foreclosure proceedings—which has actually worsened the underlying problems in the housing market.

"There has been an effective moratorium on foreclosure," said Roubini.

And the beginning of the end of that moratorium means more housing supply is about to become available on the market.

"The shadow inventory of not-yet-foreclosed homes—due to the moratorium—will surge in the next year," Roubini says.

Both factors, taken in concert, set up a scenario where market fundamentals put downward pressure on prices: "Supply will increase, demand will drop," Roubini said.

The Case Shiller Composite-20 Index, which represents the broadest measure of U.S. home prices in the survey, fell 1 percent on an adjusted basis during the September/October time period, based on data release earlier today.

All 20 Metropolitan Statistical Areas included in the survey showed declines—reflecting a broad based, non-regional erosion of prices in the housing sector.

But Roubini isn't yet predicting a double dip recession for the broader economy.

"The rest of the economy is recovering. Most of the numbers are consistent with a growth rate of 2.7 percent," Roubini said.

But that 2.7 percent growth is still below trend. "So unemployment will likely remain above 9 percent," according to Roubini's analysis.

Roubini adds that there are other ominous economic signs on the horizon including: "The eurozone shock, long-term structural deficits, and state and local governments [operating near] bankruptcy."

And, if homeowners begin walking away from their properties en masse, those negative trends might well pick up steam:

"12 million households are already in negative equity and 8 million more have an LTV btw 95 and 100%. Thus even a 5% fall in home price will push an extra 8 million in negative equity with risk of millions walking away from their home—i.e. jingle mail," Roubini wrote me in a text message earlier today.

It's certainly a sobering scenario to contemplate as we head into the New Year.

I suspect that, rather than increase fuel taxes, Congress and state legislatures may very well try popularity tactics such as temporary relief of gasoline taxes if price spikes begin to hurt the middle class, further exacerbating transportation funding issues.

What I have found interesting is the FuelWatch concept implemented in Western Australia. Gas stations must notify the government of prices they intend to charge in the next 24-hours and must hold that price for the next 24 hours. This is not a "price control" per se, as stations can raise their price however they want on a daily basis (rather than hourly or whenever they want). However, the information is made available to all consumers, which has lead to lower gas prices overall due to pricing transparency and consumer confidence in knowing what the price wiill be at a gas station before they get there. I wonder if we could do that here in the United States.http://en.wikipedia.org/wiki/FuelWatch

Ruppert says he and Nicole think there could (not will) be a collapse in 2 to 3 months, maybe even weeks. He does say he is waiting to hear from Chris Martenson on January 9 on what he thinks. Hmm...

He suspects Republicans in the House will pass a bill allowing cas-strapped states to declare bankruptcy to "break the unions:. But didn't Arkansas declare bankruptcy during the Great Depression anyway? Hmm...

Yesterday I bought some BP Ultimate diesel here in Reading UK. This is the most I have ever paid for it at £1.35 per litre. I make that $7.88 per US gallon. Ouch.

To try to make it go further:

1.) I keep under 60 on the motorway

2.) I do my food shopping on the way home from work

3.) I take all unnecessary junk out of the boot

4.) I only fill the tank half full. (No point in carrying around an extra 35 litres of fuel)

I use 98 octane fuel in my Citroen too. Last time I filled up at $1.499/L, it cost me almost $99! It's only a matter of time before full fills cost $100+. That's $5.70/US gallon - $6.80/Imp gallon.

I keep under 90km/h on the freeway (where our speed limit is 110km/h) and 80 on secondary roads - I live in the country and that's mostly the sort of driving I do. In winter, with no aircon use, I have done as good as 6.3L/100km (45mpg imp - 37mpg US) but usually more like 7L/100km (40mpg imp - 33.5mpg US) which I think is pretty good for a 2L 1300kg car.... in summer I use about 10% more.

Apart from driving slowly, I also inflate the front tyres to 40psi, and the rear 36psi (with hydropneumatic suspension, you don't even notice ) and I feather the loud pedal constantly, never making sudden pushes on it. It's a lso a little known fact that modern cars, even those with carburettors, turn the fuel off completely under a closed throttle. If you look well ahead and plan how to deal with what the traffic ahead has to offer, you can back off early (and save your brakes!) and travel distances that quickly add up for FREE!

The Citroen is very torquey, and I only take it out of 5th gear very reluctantly. If you feather the accelerator and don't stress the engine at all, you'd be surprised how slowly you can drive in a tall gear..... often down to 50 km/h (25mph) from which speed you can slowly speed back up to whatever is normal for the conditions. Don't do this on any hill though....